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Creating a Budget

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A woman typing on a calculator.

A budget is simply a plan for what you want to do with your money. By sticking to it, you will have the money for the things that are important to you, whether it be setting up an emergency fund or taking a nice vacation once a year. Though everybody’s budget is different, there is one consistent rule of budgeting: Expenses should never exceed income.

4 steps to creating a budget

  1. List and total your monthly net income
    List your household net income from all sources. If you receive seasonal or periodic income, calculate what you receive per year and divide by 12. If you are uncertain about any figures, be conservative with your estimate. It’s better to have money left over than be caught without enough to pay your bills.
  2. List and total your current monthly expenses
    Remember to list debt payments and savings contributions. Also don’t forget about expenses that come up once in a while (called periodic expenses), such as gifts, trips, and vehicle maintenance costs. To calculate what you spend per month, total what you spend per year divided by 12 (months). Even though you may only have many of these expenses once or twice a year, you can set aside money every month so that they are easier to pay when they do occur.
  3. Subtract your total current expenses from your total current income
    If on paper you have money left over, but in reality you are living close to the edge or falling behind, then you have not accounted for everything or some of your figures are wrong. Take some time to examine your budget for inaccuracies and make corrections. You may want to track your expenses for another month or two and see what other miscellaneous expenses are not accounted for in your budget.
  4. Identify where you want to make changes in your budget 
    If you’re spending more than you’re earning, you will need to make changes. Are there any ways you can increase your income (e.g., get a part-time job, rent out a room in your house, work overtime)? Are there any expenses that can be reduced, postponed, or eliminated? Be honest about what is a necessity and what isn’t. Eating out for lunch everyday or having cable television is nice, but you don’t need them to live.

Even if you’re currently spending less than you’re earning, if you are not saving as much as you want to it’s a good idea to consider what ways you can increase your income or reduce your expenses to free up some extra cash. You may also want to make changes if you have credit card debt or unsecured personal loans so that you can increase your payments. The higher your monthly payments, the less interest you have to pay and sooner you will be debt free.

Use our interactive budgeting worksheet to help you get started with creating your budget.

If you have any questions about creating a budget or if we can help you in any way, please contact Member Services at 804-323-6800 or 800-285-6609.